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ELCO MLP Separately Managed Account MLP JAN 2014 Presentation.pdf · PDF file ELCO MLP Separately Managed Account Program January 2014 “The U.S. Energy Boom will be like the Internet

Mar 22, 2020

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  • ELCO MLP Separately Managed Account Program January 2014

    ELCO MLP Separately Managed Account Program January 2014

    “The U.S. Energy Boom will be like the Internet of the 1990’s.” – Jack Welch

    *See legal disclaimer page 17*See legal disclaimer page 17

  • 2

    ELCO Management Overview Focus and Expertise

    ELCO Management Overview Focus and Expertise

    ELCO is an Energy and Infrastructure focused investment manager founded in 1995.

    • Managers have a combined total of 100+ years of experience researching and investing in the energy sector, 60+ years directly focused on MLPs

    • ELCO employs a fundamental research driven process and utilizes a strict and comprehensive risk management approach

    • Current investment opportunities offered by ELCO include two energy funds and actively managed MLP separately managed account strategy (slide 9) , which can be tailored to clients risk and income requirements.

    • One Hedge Fund managed by ELCO has been consistently recognized as a top-ten energy focused fund by Barclays Managed Fund Report

    • Assets under management are currently $275 million • SEC Registered

  • What is a Master Limited Partnership (MLP)?What is a Master Limited Partnership (MLP)?

    An MLP is a partnership whose shares (units) are traded on public exchanges.

    MLPs are yield oriented vehicles comparable to utilities and REITS.

    Similar to REITs, MLPs are tax efficient corporate structures. MLPs pass all income, gains, losses, and tax deductions to limited partner investors (LPs). MLP distributions (dividends) are typically 70-90% tax deferred and can offer estate planning benefits.

    To qualify as an MLP, more than 90% of a company’s revenue must be derived from the extraction, transportation, processing, storage or distribution of a natural resource. These assets are typically long- lived and produce stable free cash flow.

    Master Limited Partnerships (MLPs) are at the leading edge of building, acquiring, maintaining, and managing the core energy infrastructure in North America

    There are more than 100 MLPs. A majority of MLP’s operate in the pipeline sector and MLPs operate almost half of US pipeline miles

    Over the past decade, MLPs have provided superior returns with lower risk compared to stocks and bonds

    3

    ELCO MLP SMA S&P 500 Index 15.57% 5.78%

    Compound Annual Growth Rate Since Inception

  • 4

    MLP OutlookMLP Outlook

    • MLPs have abundant organic growth opportunities. In the past five years alone, MLPs have invested ~$100 billion in new infrastructure—impressive relative to their current market capitalization of ~$400billion.

    • MLPs are well positioned to benefit from the significant infrastructure needs associated with emerging shale gas resources

    • Unconventional gas resources are forecast to grow from 8.0 Tcf in 2008 to between 16.1 and 22.4 in 2030 • Shale developments occurring in non-traditional locations requiring new pipelines • Expanding need for natural gas storage in new production basins • Growing need for natural gas processing capacity

    • Further opportunity exists in capacity additions in the intrastate pipeline network. An estimated $20 billion of investment is needed in the next two years if all 180 proposed projects move forward. INGAA, the US pipeline trade group, estimates $130-$210 billion of investment is required to meet demand growth over the next 20 years.

    • With an average yield of 6.00% and estimated high single-digit distribution growth, MLPs are poised to provide continued attractive total returns.

    Source: Wells Fargo Bloomberg

    12.4%

    6.0%

    6.4%

    3-Year Distribution Growth Estimate Total Return Potential

    + =

    Current Yield

  • 5

    Outlook: Energy Trends Lead to Increased Growth for MLPs

    Outlook: Energy Trends Lead to Increased Growth for MLPs

    Fundamental changes in the U.S. energy industry are creating significant opportunities to invest in North American energy infrastructure as new shale plays are typically in regions with little or no take-away or processing infrastructure

    • Shifting North American supply basins – Oil and Natural Gas Shale plays, Canadian oil sands, Rocky Mountains & LNG- all present growth opportunities for energy infrastructure players

    • Shale “haves and haves not” - market has bifurcated companies that have significant exposure to shale

    • Companies in hotter plays have out-performed (Eagleford, Marcellus, Permian, Bakken)

    • IOCs and Majors have made sizeable investments (JV’s – Chevron, Exxon, Reliance, CNOC)

    • M&A heating up – Kinder Morgan/El Paso, Energy Transfer/Southern Union & Sunoco, Statoil/Brigham, Exxon/XTO, BHP/Petrohawk

    • Political backdrop - Washington encouraging more development of domestic energy to support job growth and national security

  • MLP Overview The MLP universe has grown substantially in the past 15 years; from a small number of niche investments to

    over 100 companies and over $400 billion of market capitalization rivaling the US utility sector in size

    6

    MLP Risk Profile

    MLPs have several subsectors that offer varied growth and risk profiles making stock selection and portfolio management significantly more consequential

    N a t u ra l G a s P i p e l in e s &

    S t o ra g e

    P e t ro l u e m P i p e l i n e s &

    T e r m i n a l li n g

    M id s t r e a m G a t h e ri n g &

    P i p e l in e s P ro p a n e E x p lo r a ti o n &

    P r o d u c t i o n R e fi n i n g

    L ea s t C o m m o d it y S en s iti v e M o s t C o m m o d it y S en s iti v e

    Predominantly Fee-Based Business Hedging Mitigates Risk

    Current Energy MLP Landscape

    Midstream , 40%

    Propane, 2%

    Exploration & Production, 12%

    Refining, 8%

    Wholesale Distribution, 8%

    Shipping, 6%

    Fertilizer, 4%

    Coal, 8%

    General Partner/Holding

    Co, 6%

    Other, 6%

  • Current Landscape in the MLP SectorCurrent Landscape in the MLP Sector

    • “Exceptionally low levels for the federal funds rate at least through 2015” – Fed Chairman Ben Bernanke

    • MLPs refinancing debt and improving their cost of capital

    • Low interest rate environment - investors seeking higher yielding opportunities

    Institutional Ownership Fed Policy

    Source: FactSet, Wells Fargo

    • Emergence of institutional investment vehicles designed for pension funds and IRA capital

    • Improved Liquidity

    • Sticky money

    • ELCO has a similar customized product not subject to UBTI for Pension and IRA funds

    7

    Estimated Public Pension Fund MLP Allocation Per Year

    $410 $886

    $3,011 $2,556

    7 10

    24 23

    $0 $500

    $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500

    2010 2011 2012 2013 TD 0 3 6 9 12 15 18 21 24 27

    Allocation to MLPs Per Year # of Funds Per Year

  • 8

    Recent Performance of an ELCO MLP Account*

    Recent Performance of an ELCO MLP Account*

    *ELCO MLP Program inception was on February 4, 2004. The monthly performance has been provided by Advent Accounting and Portfolio Management system and represent an existing long only account, which

    includes a 1.5% management fee, results are not audited. Prior to January 2013 the management fee was 1.4% Past performance is not indicative of future results of the program.

    2.462.462014

    35.703.182.192.701.83-1.961.152.57-1.391.675.733.829.932013

    9.79-1.06-0.88-0.304.134.475.571.90-8.471.49-3.074.931.572012

    JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC YTD

    2011 2.09 6.45 0.95 3.82 -5.08 0.53 -2.50 -2.14 -4.79 8.01 0.89 6.12 15.80

    2010 0.74 4.62 4.40 1.40 -4.76 9.04 5.37 -2.06 7.32 4.63 3.78 4.27 44.78

    2009 16.08 -4.68 1.61 11.44 12.87 -2.06 14.64 -3.04 6.20 2.81 8.52 9.24 99.27

    Recent performance has benefited from the significant growth opportunities surrounding the various shale plays and demand for infrastructure associated with those plays.

    Investors have emphasized high yielding securities , MLPs average yield of 6% with average distribution growth on ~6-8% offers a compelling total return potential

    M&A activity – Energy Transfer/Southern Union, Kinder Morgan/El Paso, Energy Transfer/Sunoco, Kinder Morgan/Copano, Inergy/Crestwood, Regency/PVR

  • Active Management Active Management At ELCO, the preferred method of investing in MLPs is through an actively managed

    separate account

    The chart above displays the disparate range of performance of just a few of the investment vehicles in the MLP space. The Alerian MLP Index (in italics), is the industry benchmark, where the top six MLP

    positions comprise almost 50% of the total Index (see below). Most MLP investment options are structured to track the Alerian Index. Performance of these investment vehicles suffered as some of

    larger allocations unperformed in 2013, especially Kinder Morgan.

    9

    *ELCO MLP Program inception was on February 4, 2004. The monthly performance has been provided by Advent Accounting and Portfolio Management system and represent an existing long only account, which

    includes a 1.5% management fee, results are not audited. Prio

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